terminal year cash flow
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Question 2. The Marcus Company is evaluating the proposed acquisition of a new machine. The machine's base price is $375,000, and it would cost another $150,000 to modify it for special use. The machine falls into the MACRS 3-year class, and it would be sold after 4 years for $40,000. The machine would require an increase in net working capital of $25,000. The machine would have no effect on revenues, but it is expected to save the firm $110,000 per year for 4 years in before-tax operating costs. . Campbell's marginal tax rate is 30 percent and its cost of capital is 10 percent.
a. Calculate the cash outflow at time zero.
b. Calculate the net operating cash flows for Years 1, 2, 3, and 4
c. Calculate the terminal year cash flow.
d. Should the machinery be purchased? Why or why not?
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Solution Summary
Calculate the cash outflow at time zero.
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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